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FINRA Levies $20 Million Fine Over Variable Annuities

The Financial Industry Regulatory Authority (FINRA) announced May 3 that it has fined MetLife Securities, Inc. $20 million for allegedly misleading “tens of thousands” of customers who purchased variable annuities.

In addition, FINRA ordered MetLife to pay $5 million to customers for making negligent material misrepresentations and omissions on variable annuity replacement applications. According to FINRA, each of these misrepresentations and omissions made the replacement appear more beneficial to the customer, even though the recommended VAs were typically more expensive than customers' existing VAs. The $25 million total is the highest penalty FINRA has ever imposed regarding variable annuities.

MetLife’s VA replacement business constitutes a substantial portion of its business, generating at least $152 million in gross dealer commission for the firm over a six-year period.

According to a FINRA statement, the regulator found that from 2009 through 2014, MetLife misrepresented or omitted at least one material fact relating to the costs and guarantees of customers' existing VA contracts in 72% of the 35,500 VA replacement applications the firm approved, based on a sample of randomly selected transactions.

“Firms engaging in this business must ensure that the information on the costs and benefits of these products provided to customers is accurate, and that their registered representatives are sufficiently trained to understand and explain the risks and complex features of what they are selling. These obligations take on even greater importance when a significant part of a firm's marketing effort involves switching customers out of existing annuities," said Brad Bennett, FINRA Executive Vice President and Chief of Enforcement in a statement.

Oversight Failure

FINRA also found that MetLife failed to ensure that its registered representatives obtained and assessed accurate information concerning the recommended VA replacements, and did not adequately train its registered representatives to compare the relative costs and guarantees involved in replacing one VA with another. According to FINRA, the firm’s principals ultimately approved 99.79% of VA replacement applications submitted to them for review, even though nearly three quarters of those applications contained materially inaccurate information.

FINRA also found that MetLife failed to supervise sales of the GMIB rider, the firm’s bestselling feature for its VAs. The rider was marketed to customers (many of whom were already holding MetLife annuities) as a means of providing a guaranteed future income stream. A frequently cited reason for the recommendation of VA replacements was to allow a customer to purchase the GMIB rider on the new VA contract. Nevertheless, said FINRA, MetLife failed to provide registered representatives and principals with reasonable guidance or training about the cost and features of the rider.

Account Statements

In addition, FINRA found that since at least 2009, firm customers have received misleading quarterly account statements that understate the total charges and fees incurred on certain VA contracts. Typically, the quarterly account statements misrepresented that the total fees and charges were $0.00 when, in fact, the customer had paid a substantial amount in fees and charges.

No Surprise

According to FINRA, MetLife neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. The resolution came as no surprise, as FINRA had warned MetLife last year that it was facing “a significant fine” regarding problems FINRA was investigating with the firm’s retirement income products. MetLife is in the process of selling its broker-dealer unit to MassMutual.

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